Critics hit out at 'get out of jail card' for companies

Richard Murphy, of the Tax Justice Network, said the IFRS8 standard allows for companies to change the segments on which they report, leading to ‘incomparability’ of the accounts from year to year. His criticisms see him line up alongside UK investors opposing the new standard.

‘According to the standard, the data doesn’t have to reconcile with the auditor’s accounts, which is staggering. And they don’t have to use the same process of accounting for segments as they do for the rest of the accounts. Therefore the accounts are totally and utterly open to manipulation,’ said Murphy.

His comments come on the back of criticism by investors through the Investment Management Association – responsible for the management of £3trillion in funds in the UK and abroad.

The standard states that segment reports are based on internal reports reviewed by a ‘chief operating decision maker’ who must also decide which segments to report on.

‘There is no guidance as to who the chief operating decision maker is – is it the board, executive management or a member of senior management?…The amount of detail reported will differ according to the seniority of the chief operating decision maker and may not necessarily result in the disclosure of useful information,’ the letter said.

An investor from IMA said this week: ‘The more that you read into the standard, the more scope there is for this being a “get out of jail card” for the unscrupulous, e.g. setting budgetary structures to suit opaque financial reporting.’

Australian academic, Mark Hughes commented: ‘The report should be based on standards that are designed to produce an image more like an impressionist painting in the style of Van Gogh, rather than something from Picasso’s experimental period.’

Deloitte partner and IFRS expert Ken Wild said he was surprised the investors were coming out with their reservations ‘so late’.

‘I wouldn’t have gone down this route without more research and argument,’ said Wild.

‘But having gone the route, the European rejection is too much of a blunt tool for the purpose of stopping it. And it would be very unfortunate to use a blunt tool which will prevent the standard being used in Europe when it has been agreed in the rest of the world… it could produce a chasm between Europe and the rest of the world again.’

For more information see www.iasb.co.uk